This issue of the East Asia and Pacific economic update is based on data available through September 29, inclusive. This report also includes a special section, focusing on two crucial medium-term issues facing developing East Asia and Pacific: education and skills development, and international migration; and an overview of the economic prospects and policy priorities for the Pacific Island Countries.
... See More + Overall, the global economy is showing signs of recovery, but at an uneven pace; global growth is expected to rise modestly to 2.6 percent in 2014, and an average 3.3 percent in from 2015 to 2017. The gradual strengthening of activity in high-income economies will boost demand for exports from developing East Asia and Pacific, helping the region sustain its growth performance. In China growth will gradually moderate to 7.4 percent in 2014 and 7.1 percent in 2016, reflecting intensified policy efforts to address financial vulnerabilities and structural constraints, and place the economy on a more sustainable growth path. In the rest of the region, growth will gradually pick up, as exports firm and the impact of domestic adjustment in the large ASEAN countries eases. Investment in the large ASEAN economies weakened, while private consumption remained resilient. Fiscal policy in many countries has aimed at rebuilding fiscal space but these efforts need to be sustained. Credit growth has slowed reflecting tighter policies and inflation generally remains low. Significant uncertainties remain about the strength and sustainability of the recovery in high-income economies, as well as about the timing of policy actions by central banks in these countries. In this uncertain global environment, there is still a window of opportunity to enact critical, and in some cases overdue,reforms; the short-term priority in several countries is to address the vulnerabilities and inefficiencies that have been created by an extended period of loose financial conditions and fiscal stimulus. In China the authorities need to strike a balance between containing the growing risks from rising leverage and meeting the indicative growth targets. Over the longer term, the focus in most countries must be on implementing the structural reforms needed to enhance their export competitiveness.
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In the Pacific island countries, which are small and far from world markets, labor mobility represents the most significant and substantial opportunity for overcoming geographic constraints on employment.
... See More + This report presents a brief overview of employment challenges in small Pacific island countries and recommendations for addressing them. The report contributes to an ongoing World Bank analytical program examining the linkages between employment and well-being around the world, begun with the World Development Report 2013: jobs. Discussion in this report relates to Pacific island states, with populations of significantly less than one million, including Solomon Islands, Vanuatu, Samoa, Tonga, Tuvalu, Kiribati, Republic of Marshall Islands, Federated States of Micronesia, and Palau. Economic growth and diversification has been very limited in these countries because of the barriers imposed by smallness and distance, and these barriers will not be quickly overcome. This report provides five priorities that are likely to be broadly applicable to the unique group of countries. First, stakeholders' expectations about the trajectory of development will need to be realistic. Second, the volume of international labor mobility should be increased through the erosion of regulatory barriers and investment in transferable human capital. Third, governments can work to harness the positive potential of urbanization through investment in improved rural services, connective infrastructure, and improved urban administration. Fourth, productive public spending can be used as a mechanism for creating new employment opportunities. Finally, policies can ensure that natural resource industries provide a sustainable source of employment creation.
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This note is intended to inform Public Financial Management (PFM) reform in small Pacific Island Countries (PICs). PFM systems in PIC contexts are often very different from the sophisticated and comprehensive systems operating in larger, wealthier countries.
... See More + The authors give two key messages. Firstly, PFM capacity should be prioritized to areas that matter most in achieving development outcomes, and reforms should be intended to address specific, identified, problems, rather than to achieve blueprint good practice standards. Secondly, with small numbers of staff and high staff turnover limiting potential for sustainable gains from standard capacity building solutions (such as training programs and workshops), broader options for meeting capacity gaps should be considered, including accessing ongoing support for specialized tasks or even the wholesale outsourcing of certain functions. The three main sections of this note are as follows: (i) how to plan PFM reforms, including through the development of PFM roadmaps; (ii) how to prioritize limited PFM reform capacity to address the most pressing constraints to development; and (iii) how to access additional capacity to implement and sustain required PFM reforms.
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This note provides guidance on planning, prioritizing, and accessing appropriate capacity for Public Financial Management (PFM) reform in Pacific Island Countries (PICs).
... See More + It is intended for use by government officials, donor agencies, and consultants. It complements, and is consistent with, extensive previous work carried out by the Pacific Financial Technical Assistance Center (PFTAC) and joint efforts by the Public Expenditure and Financial Accountability (PEFA) Secretariat, International Monetary Fund (IMF), and European Commission. Recommendations are based on a review of the literature and experiences of PFM reform in the region to date, with a focus on issues that are of particular relevance in PICs. Author start point that creative approaches are sometimes needed to PFM reform in Pacific Countries because of the extent and duration of capacity constraints. Authors have two key messages. Firstly, PFM capacity should be prioritized to areas that matter most in achieving development outcomes, and reforms should be intended to address specific, identified, problems, rather than to achieve blueprint 'good practice' standards. Secondly, with small numbers of staff and high staff turnover limiting potential for sustainable gains from standard capacity building solutions, broader options for meeting capacity gaps should be considered, including accessing ongoing support for specialized tasks or even the wholesale 'outsourcing' of certain functions.
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Drawing on Public Expenditure and Financial Accountability assessment scores from 118 countries, this paper provides the first comparative analysis of public financial management performance in small Pacific Island Countries (PICs).
... See More + It applies a Tobit regression model across the full cross-country sample of Public Expenditure and Financial Accountability scores and country variables to identify potential causes for the observed underperformance of Pacific Island countries relative to other countries of similar income. First, the analysis finds small population size to be negatively correlated with Public Expenditure and Financial Accountability scores, with the "population penalty" faced by small Pacific Island countries sufficient to explain observed underperformance. Second, through application of a new capacity index of Public Expenditure and Financial Accountability dimensions, it finds strong evidence in support of the hypothesis that small population size impacts scores through the imposition of capacity constraints: with a limited pool of human capital, small countries face severe and permanent challenges in accessing an adequate range and depth of technical skills to fulfill all functions assessed through the Public Expenditure and Financial Accountability framework. These findings suggest that approaches to strengthening public financial management in small Pacific Island countries should involve: i) careful prioritization of public financial management capacity toward areas that represent binding constraints to development; ii) adoption of public financial management systems that can function within inherent and binding capacity constraints, rather than wholesale adoption of "best practice" imported systems; and iii) consideration of options for accessing external capacity to support public financial management systems on a long-term basis, from regional agencies, the private sector, or donors.
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It might seem that Indonesia and the Pacific Island countries have nothing in common. Indonesia's population is more than one thousand times as large as the populations of most Pacific Islands.
... See More + Indonesia has a huge pool of highly educated bureaucrats while some Pacific Island countries have only a few graduates in key areas. Indonesia has a dynamic and fast-growing economy; already the world's 18th largest, whereas most Pacific Island economies are very small and face limited growth prospects. But ensuring that central ministries have adequate capacity in economic management is a key issue in both parts of the world, with macroeconomic policy and good use of public resources underpinning all other aspects of development. In both contexts, the World Bank and other donors are working with local staff to strengthen skills, knowledge, capabilities, and systems for better policies, practices, and outcomes in these areas. Given the World Bank's role as a global 'knowledge bank', the author in the Pacific division have been working hard with staff involved in strengthening economic management capacity in Indonesia to ensure that lessons across these very different contexts are being exchanged.
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International aid flows are equivalent to almost half of Solomon Islands' economy, making it one of the most aid-dependent countries in the world.
... See More + Around US$250 million of non-military aid enters the country, but only 15-20 percent of this amount is spent locally through local procurement or staff expenditure. Solomon Islands are currently highly reliant on logging for export receipts, Government revenues, and employment. But existing stocks of natural forest logs are expected to be entirely exhausted by 2014. The Solomon Islands Government approached the World Bank Group to identify alternative sources of revenue, foreign exchange receipts, and employment in the absence of logging. In responding to this request, the World Bank Group has undertaken extensive analytical work examining short and medium-term prospects for economic growth in Solomon Islands, under the sources of growth project. This report contributes to the sources of growth work, and is informed by its findings. A key conclusion arising from sources of growth analysis is that aid is likely to remain a key part of the Solomon Islands economy for the near future. The existence of an international security guarantee, backed by the presence of an international peacekeeping force, is paramount for security, and investment certainty. In the absence of clear or certain alternatives to logging, and in the context of rapid population growth, current levels of service delivery will continue to depend on high levels of aid expenditure.
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